The Adani Group wants you to believe it has repaid all its loans against promoters’

shares. Here’s why you shouldn’t

Despite the Adani Group's claim of “complete” repayment of $2.15 billion in share-backed debt,
regulatory filings show that banks have not released a significant portion of the promoters' shares held
as collateral, indicating that the debt has not been fully paid off

https://the-ken.com/story/the-adani-group-wants-you-to-believe-it-has-repaid-all-its-loans-against-
promoters-shares-heres-why-you-shouldnt/

To say that 2023 did not start well for the energy-to-ports conglomerate Adani Group would be an
understatement.

The group is still feeling the aftershocks of a damning report released in January by the US-based short
seller Hindenburg Research. It recently had to put on hold plans for a greenfield petrochemical plant and
a coal power plant takeover worth over Rs 42,000 crore (~$5 billion). The group also put on the back
burner its plans to buy a stake in the government-owned power company PTC India Ltd, formerly Power
Trading Corporation. These have all been insults to injury since its much-touted multi-billion dollar follow-
on public offer (FPO) was junked earlier this year.

The stock prices of the group’s companies have taken a nosedive since the Hindenburg report, after a
confounding rally that lasted for about two years. The free fall in the stock prices has slowed down for
now following the group’s highly publicised announcements of a “complete” repayment of margin-linked
share-backed loans by the promoters. However, these announcements conceal more than they reveal.

Share-backed loans are considered a risky way of raising money as they involve pledging shares of a
company as collateral to obtain a loan. A decline in the value of these shares may result in the lender
asking for more shares in collateral or selling these shares, triggering financial instability. The Adani Group
promoters, whose shares can be pledged for such loans, include the group’s chairman Gautam Adani, his
wife Priti, brother Rajesh, private promoter entities and family trusts. Money raised through share-backed
loans can be used for both business and personal use.

Over the last two months, the group has claimed to have repaid about $2.15 billion; it announced, on 12
March, that all of its margin-linked share-backed debt has been paid. However, regulatory filings
examined by The Ken show that banks have not yet released a large portion of its promoters’ shares, as
they should have if the loans had indeed been completely repaid. As per Indian laws, disclosures on the
release of shares need to be filed with stock exchanges by lenders within two working days, and by
promoters within seven working days. But neither the Adani Group nor the lenders have made these
disclosures to stock exchanges.

The context in which these loan repayments occurred helps explain the saga. As Financial Times reported,
the Adani Group was facing margin calls from lenders to the tune of millions of dollars. This was because
the value of the shares, which banks held as collateral, plummeted in the wake of the Hindenburg report.

To break this down, say a promoter borrowed Rs 100 ($1.2) and pledged shares worth Rs 140 ($1.7) as
collateral. If the value of the shares drops to Rs 100, the bank will issue a margin call. The promoter then
has two options: either pledge additional shares to meet the Rs 140 collateral requirement or repay a
portion of the loan to reduce the collateral requirement to Rs 100. It appears that the Adani Group opted
for the latter—repaying part of the loan instead of pledging more shares.

This has been misrepresented in publicity material and Indian media to indicate that the entire margin-
linked share-backed debt had been repaid. But, in fact, the group has only reduced the loan amount
through partial repayment to avoid pledging more shares and any action against it by the lenders.

The Adani Group did not respond to detailed queries sent by The Ken. Their response will be published as
and when received.

The government also seems to be getting involved in how public-sector banks have been handling shares
as collateral. Business Standard reported that in a meeting chaired by the finance minister Nirmala
Sitharaman on 25 March, the government told publicly owned banks to actively monitor and manage the
shares companies have pledged as collateral for loans, and to integrate market data to do so.

A case of missing disclosures

In May 2020, Gautam Adani’s son Jeet Adani, in an earnings call of Adani Ports & SEZ, said the group would
eliminate promoters’ pledges in less than two years. “Our aim at the promoter level is to take this number
to zero,” he said. “We view this as a type of financing strategy that we do not want to continue going over
in the future. You can expect in the next 12 to 18 months for this entire promoter pledge saga to get over.”

And yet, the group is not far off from where it was three years ago.

On 6 February, the Adani Group put out a statement that its promoters had “prepaid $1.1 billion worth of
loans” ahead of their maturity in September 2024. These loans were availed by pledging promoters’
shares in three of its listed group companies—Adani Ports & SEZ, Adani Green Energy, and Adani
Transmission. The lenders included various international banks, including Barclays, Citigroup, Deutsche
Bank, Sumitomo Mitsui Banking Corporation, and JPMorgan Chase.

In the statement, the group claimed that the pledged shares of these companies would be released by
lending banks in “due course” upon repayment of the debt. And that the repayment would lead to the
release of 168.27 million shares of Adani Ports & SEZ, representing 12% of the promoters’ holding; 27.56
million shares of Adani Green, representing 3% of the promoters’ holding; 11.77 million shares of Adani
Transmission, representing 1.4% of the promoters’ holding.

The release of these shares would have had to be disclosed to stock exchanges, as mandated by
Regulations 29 and 31 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

However, an examination of the Substantial Acquisition of Shares and Takeovers (SAST) disclosures of
each of these companies by The Ken shows that, after Adani’s prepayment announcement, banks have
only released the pledged shares of Adani Ports & SEZ.

The pledged shares of Adani Green and Adani Transmission have not been released by banks even a month
after the loan repayment. This is highly unusual as pledged shares are usually released immediately after
the borrower settles their debts.

Like most of its listed entities, Adani Green is tightly controlled by the promoters, with 60% of the shares
held by them. The shareholding pattern of the Adani companies has been under question for a long time—
the Hindenburg report highlighted this, and The Ken wrote about it in April 2021. Hindenburg attributed
the rally in Adani companies’ stock prices to a lack of a substantially lower free float and stock-price
manipulation.

Adani Transmission, too, follows a similar pattern of substantial promoter control, although a considerably
smaller portion of the promoters’ holdings is pledged to avail loans. As of 31 December 2022, the
promoters had pledged 4.36% in Adani Green and 6.62% stake in Adani Transmission, according to official
filings.

The report in Financial Times on 8 February suggests that before the group made the announcement of
prepaying $1.1 billion of these debts, the group faced margin calls of $500 million from these foreign
banks.
The deeper you go, the darker it gets
As the Adani Group struggled to regain its footing in the wake of the Hindenburg saga, it was extended a
lifeline by GQG Partners, an asset-management firm focused on active equity portfolios, headed by Rajiv
Jain.

On 2 March, GQG Partners announced that it was investing $1.9 billion in various Adani-owned
enterprises. A week later, Jain announced that he wasn’t averse to investing more in Adani. In February,
before he pumped money into the conglomerate, Jain had said despite Adani’s burgeoning debt, it wasn’t
“a Satyam or an Enron”, referring to large corporations that collapsed after their involvement in large-
scale corporate fraud was exposed. For its investments, GQG Partners got varying stakes in four Adani
Group companies, including Adani Enterprises, the conglomerate’s mothership.

On 7 March, a few days after GQG’s investment, the group again announced that it was settling promoter
debt worth $902 million. Like its announcement in February, this settlement was a “prepayment” before
the maturity of these loans in April 2025. The group claimed that portions of promoters’ stake in Adani
Ports & SEZ, Adani Green, Adani Transmission, and Adani Enterprises pledged for this loan would also be
released. None of the pledged shares, pertaining to this payment, have been released by banks, as per
regulatory filings.
On 12 March, the group went further and declared with the headline that “Adani Fully Prepays Share
Backed Promoter Financing”. The press statement said the group had “completed full prepayment of
margin-linked share backed financing aggregating to $2.15 billion, well before the committed timeline of
March 31, 2023”. Interestingly, the two tranches of loan repayment the group has announced—$1.1
billion in February and $905 million in March—add up to ~$2 billion.

An examination of SAST records by The Ken revealed two crucial facts. First, despite the group’s claims of
“complete” repayment on 12 March, none of the group promoters’ pledged shares in any of the above-
mentioned entities (except Adani Ports & SEZ in February as part of the $1.1 billion repayment) have been
released by lenders.
These claims become harder to believe considering the fact that the group has been forced to pledge
more promoter shares after the State Bank of India (SBI) made a series of margin calls. SAST disclosures
show numerous transactions between 8 February and 6 March, in which more promoter stakes were
pledged after SBI’s margin calls.

On 6 March, the number of promoter shares in Adani Green pledged with SBI almost doubled. On the
same day, the promoters’ shares in Adani Transmission pledged with SBI also more than doubled. The
group’s promoters had pledged these shares towards existing loans for Adani Enterprises.

On 13 February, the chairman of SBI Dinesh Khara told a private news channel that the additional pledges
by the Adani Group were not for a new loan but were a “top up of collateral to maintain covenants relating
to the existing loan to the Gautam Adani-led group.”

A senior banker with two decades of experience in investment banking, who did not want to comment
publicly on the matter, offered an explanation. They still need the existing pledges after the repayment of
loans because of the plummeting value of pledged shares, which would be insufficient to recoup the loans
in case of a default.
Another senior SBI official, in an interaction with a private news channel, also mentioned that the group
had to maintain a “140% collateral”. This meant that for every $1 billion loan, Adani had to pledge shares,
or any other collateral, worth $1.4 billion.

While there may be “procedural delays” in filing such disclosures with the bourses, the case of the Adani
Group was intriguing for a couple of reasons, said a senior advocate, who did not want to comment
publicly on the matter. First, procedural delays are usually for a few days, but in Adani’s case, no
disclosures have been made on the release of promoters’ shares for a relatively long time—more than a
month in case of the February payment and over three weeks since the March payment.
The senior counsel also expressed concern that the Adani Group had actually increased its pledged shares
with SBI, despite claiming it had repaid all of its margin-linked share-backed loans. Such lack of
transparency is in contravention of stock-market regulations that require ordinary investors to be
informed about critical developments in companies they have invested in.

The group’s claims of significant debt repayment have had little effect on international credit rating
agencies’ outlook on the Adani firms since the Hindenburg report.

On 22 March, S&P Global Ratings released a credit report, which hinted at a potential downgrade for the
Adani Group. “We are likely to take a negative rating action should any investigation uncover serious
wrongdoing,” said the report. “This may include previously undisclosed material related-party loans, cash
leakage, or misreporting.”

Earlier, on 10 February, Moody’s had changed the outlook of Adani Green and Adani Transmission—the
two companies in which banks haven’t released the promoters’ pledged shares—to negative from stable.

Of misrepresentations and non-disclosures

Adani’s failure to disclose that promoters’ pledged shares remained unreleased even after the repayment
of $2.15 billion in loans may seem like an anomaly. However, upon further investigation, The Ken found
other discrepancies between Adani’s public statements and the actual events that occurred on stock
exchanges.

In the 7 March statement, the group said banks would release 31 million shares of Adani Enterprises as
part of its loan prepayment. This was a staggering 9 million shares or 40% more than what it had declared
to stock exchanges, based on an examination of SAST records as on 7 March. No interim share-pledge
disclosures have been made by Adani Enterprises till the time of publication of this report. This raises the
question whether the group has pledged more shares than it has disclosed to the stock exchanges? If so,
this would be a serious violation of the regulations.

The 7 March statement also said the $905 million loan repayment would lead to the release of 155 million
shares of Adani Ports. However, an examination of SAST records on 7 March revealed that the number of
shares pledged with banks was only 152 million.
This, too, begs the question: why is the group claiming the release of a higher number of pledged shares
than it has disclosed in its stock-market filings?

The senior banker explained why pledges might have not been disclosed to the full extent. “Promoters
were facing margin calls as shares of their companies whose stake was pledged with banks had fallen
significantly after the publication of the Hindenburg Report,” said the senior banker, adding that this might
have led the promoters to pledge more shares that were not disclosed to the stock exchanges. “These
undisclosed pledges in two group companies amount to a misrepresentation of how Adani showcased its
promoter pledge and loans to the stakeholders. This could be serious non-compliance of SEBI regulations.”

Sudarshan Bhandari and Nimish Maheshwari are chartered accountants and co-founders of Beat The
Street, a financial markets platform which extensively covers corporate governance issues and red-flags
through their YouTube channel and Twitter handle.